Using overseas contractors

The use of overseas contractors has been growing over recent years, as a result of lower labour costs in other parts of the world combined with improved methods of international communication. But what are some of the potential issues to look out for when using contractors abroad?

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Employment law and jurisdiction

Employment laws are fairly harmonised across the EU, however that does not mean that an a person hiring a contractor should ignore the employment laws of the country of the contractor.

Companies using overseas contractors need to consider any country-specific employment regulation - especially with contractors based outside the EU and also be aware of any ongoing developments in employment law (eg the 2016 ruling that Uber drivers should be classed as 'workers' rather than 'self-employed contractors').

In the UK, there are important distinctions between employees, workers and self-employed contractors which determine the applicability of various employment laws (eg entitlement to minimum wage and holiday pay). Businesses wanting to use contractors in other countries need to be aware of how the different employment statuses are classified to avoid trampling on local employment laws.

Even if employment law issues do not arise, other disputes can crop up, and these can be more difficult to resolve due to differences in legislation between the contractor's country of residence and relevant UK regulations. There can also be a clash of business cultures (eg delays in work submission or payment being more acceptable in one country than another) which can lead to legal disputes. Further jurisdictional complications can arise if litigation ensues; namely determining which court (one in the UK or the contractor's country) should hear proceedings.

Preventing legal disputes

One of the most effective ways of minimising the possibility of disputes with overseas contractors is to ensure that everything is put in writing before the business relationship commences. A consultancy agreement or a subcontracting agreement can be used to set out the expectations and responsibilities of both parties. However, local employment laws vary and you should always Ask a lawyer for advice before using a written agreement with an overseas contractor, to ensure that it is valid in their specific country. It may sometimes be necessary for a local lawyer to convert the agreement into an appropriate form.

Using overseas contractors through a managed service company is another option. Rather than contracting directly with the individual, you will be contracting with the service company which handles any employment law issues at their end.

How do you pay an overseas contractor?

It's important to agree on payment terms and methods in advance. International payments will often incur extra expenses, both in terms of exchange rates and administration fees. Many overseas contractors will accept PayPal as an alternative to direct bank transfers - but cross-border charges are also levied, so ensure you check these.

Are there any tax implications?

If using a genuinely self-employed overseas contractor, there are generally no additional tax implications than there would be for using a UK based counterpart. However, as discussed above, it can be tricky to establish the true employment status of an individual. To avoid doubt, it can be helpful to contract with them via an overseas services company which handles payment and administration. It is also advisable to Ask a lawyer to assess your specific arrangements.

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